Smugglers cash in on Michigan can refund

Michigan lawmakers are looking to crack down on people who return cans and bottles that were purchased out of state.

Staff and wire reports

Misuse can be the death of any good thing and that is true of the Michigan 10-cent return on bottles and cans.

Michigan lawmakers are looking to crack down on people who return cans and bottles that were purchased out of state, because it’s costing the state up to $13 million per year.

“If you are intending to defraud ... then you should be held accountable for it,” said Republican Rep. Kenneth Kurtz of Coldwater.

Kurtz recently introduced legislation aimed at scammers who drive cans by the car-load or truck-load from outside the state to stores on the border.

His legislation would make an attempt to return between 100 and 10,000 out-of-state containers, punishable by up to 93 days in jail and a $1,000 fine. Current law sets penalties only for those who actually return fraudulent containers.

Source of redemption

Michigan’s 10 cent-per-container refund — the highest in the country — was enacted more than 30 years ago to encourage recycling.

Mike Allen, manager of Wagoners Your Hometown Food in White Pigeon, said he appreciates the law.

“It’s a good law as far as keeping the trash off the roads,” Allen said.

Other’s agree that it has worked. The state’s recycling rate for cans and bottles was nearly 96 percent in 2011. By contrast, New York, one of nine states with nickel deposits on most containers, saw only a 66.8 percent redemption rate in 2007, the most recent figure available.

Containing fraud

Despite measures Michigan lawmakers have taken over the years, including tougher penalties for bottle scammers and new machines that kick out fraudulent cans, store owners and distributors along the border say illegal returns persist.

Allen said they see it White Pigeon. And he isn’t alone.

Mike Hautala owns Hautala Distributing, which services Gogebic and Ontonagon counties in the western part of the Upper Peninsula near the Wisconsin border. He said for every case of beer his distributorship delivers to a store along the border, it picks up about seven more cases of empty cans.

The state loses $10 million to $13 million a year to fraudulent redemptions, according to most recent 2007 estimates from the Michigan Beer and Wine Wholesalers Association. Angela Madden, the association’s director of governmental affairs, said that number has likely gone down slightly because of changes implemented since, but not by much.

Bill Nichols, store director at Harding’s Friendly Market in Niles, said the store takes in about $6,000 worth of cans each week. Every week, he kicks out people for trying to return large garbage bags full of cans from Indiana, he said.

“You can go into the parking lot and look at the license plates and see that it says ‘Indiana,’” he said.

Distributors pick up the containers people return. If a distributor picks up more bottles and cans than it left — the likely result of fraudulent redemption — the distributor is left in the hole, Madden said. If the distributor picks up fewer cans than it dropped off, money that does not go back to the store is sent to the state.

Twenty-five percent of that money is sent back to retailers and 75 percent is put in a fund that pays for things like environmental cleanup, she said.

Hautala said he lost about $25,000 last year picking up more returned containers than he delivered. He said his company will recover some of that money from distributors who sell more containers than they pick up.

Technology bottleneck

In 2008, Michigan passed laws aimed at cracking down on bottle fraud. One of those laws required manufacturers to place a special mark on Michigan cans and bottles and said those containers could be sold only in Michigan or other states that have deposit laws.

A report the Department of Treasury delivered to Michigan lawmakers last fall estimated that the technology may have helped reduce redemptions of out-of-state containers by nearly 4 percent. But that reduction could also come from decline in sales, the report said.

As containers were given Michigan-specific marks, vending machines used in stores to count the cans and bottles were formatted with new technology to read the mark and reject cans that come in from across the border.

Allen said Wagoners has the new machines and it catches quite a few out-of-state cans. Still, he has to deal with irate people. Even though they are in the wrong, it’s still another hassle, he said.

But not every retailer has the technology. Madden told the committee that many retailers have not yet taken advantage of the technology, although the state has provided funding of $5,000 for a machine upgrade. If a store has an older model, they might have to shell out big bucks for a brand new machine that is compatible with the new technology, she said.

Allen agreed that the new technology is expensive. The $5,000 wouldn’t touch the price of a new machine.

Hautala said only four machines are in the two counties his company serves.